“Banking Is Under Attack”

(Source: Thomas Loverro, Principal at RRE Ventures)

Traditional financial institutions have been getting pressure from every angle. Small, new, innovative companies are picking apart the finance service business model, while big banks scramble to adapt. Tech solutions may well be the end of large banks controlling finance, but the ball is in the banks’ court.

Financial technology will continue to surge forward, with or without them. Traditional institutions need to choose to adapt or sink with their outdated business models. Current outlooks for the banks are bleak as studies show they aren’t even close to understanding the needs of the customer.

Technology has vastly increased the capacity for personal expression. Modern innovators see a blank canvas, completely re-imagining concepts from the ground up. The key to being able to wield this freedom effectively is understanding the target market. Unfortunately, it seems banks are not on the same page with consumers. In the realm of personalization 92% of banks report no need to improve. This number clearly shows a massive underestimation of consumer demands. If a company doesn’t see the need to improve, innovation is unlikely; 
an answer cannot be found if no one is asking questions.

What does a financial patron want? An overwhelming 69% of customers are interested in banking after-hours. This is a trend in service personalization — working on the customer’s schedule, not the company’s. Internet technologies very often have this trait by default. Despite this clear demand, only 14% of bank executives report interest in providing more flexible hours of operation. This will be another huge draw of newer tech-based financial service companies. There is, however, a reason for this loyalty toward brick and mortar and lethargic adaptation of tech heavy solutions seen in traditional banking institutions.

The perceived unwillingness of banks to adapt to future solutions may be confusing on the surface, but there are reasons for their desire to stand by traditional models. One major motivator to maintain storefronts are the investments already made in that aspect of the business model. From employees to computer systems and building overhead, large banks have vast sums of money tied up in the branch experience. Most people would like to avoid having to physically enter a bank, but as of right now, this is still sometimes necessary. Bank are trying to capitalize on that current necessity to remain relevant.

A trend which is gaining traction among big banks is the “cafe style” branch model. A cafe style branch provides coffee and open computers and tablets as well as wi-fi access. Instead of tellers or financial professionals, bank employees will only answer questions and guide customers through the online services the bank provides. This may sound radical but 26% of banks are planning to move toward this design while 29% already have.

The drawback to this model is a lack of onsite services. Bank employees would not be able to open an account or issue a loan, only assist in online services. Most people only go into a bank when they have to, so that may be a self defeating characteristic. As tech start-ups loom, this path may prove to be the wrong tactic.

The branch experience, no matter how effective or useful, results in overhead. This financial burden attached to the branch experience can be crippling. Online services also require investment. Hardware requirements as well as software development costs money. Tech companies with no branch experience investment can focus on the cost of servers and programmers, which may provide the edge required to dominate the financial landscape.

Check us out at www.banknovo.com